The Government is coming under fresh pressure to reform its apprenticeship levy amid warnings the policy is not reaching its potential.

The Local Government Association (LGA) called for "significant changes" to the levy, under which employers with a wage bill of more than £3 million have had to pay 0.5% of this expenditure since last April.

There have been 131,000 fewer apprenticeships started in the seven months after the launch, the LGA noted.

The association, which represents 370 councils in England and Wales, echoed complaints from business groups that the system was too complex.

It suggested that the apprenticeships system should be devolved, adding that any levy underspend should go back to local areas where it was raised.

Sir Richard Leese, who chairs the LGA's City Regions Board, said: "These figures are an early warning that the apprenticeship levy must be improved if it is to deliver the right training at the right time both for employers and for those wishing to pursue an apprenticeship.

"Combined authorities and councils fully support the ambitious target of creating three million apprenticeships by 2020 but could do far more if the Government allowed them to pool and plan local provision.

"Devolving apprenticeship funding to the local areas in which they are used will allow combined authorities and councils, schools, colleges and employers to work together to help people get the skills they need to progress in work, and supply businesses with the right skills at the right time to help local economies grow."

Apprenticeships and Skills Minister Anne Milton said: "The last year has been a period of significant change for employers and we continue to work with them to adjust and respond.

"Employers have two years to spend their levy funds and it is right that they are planning high quality apprenticeship training that meets their specific needs - and maximise the benefits apprenticeships can bring.

"We introduced our reforms to put quality at the heart of this programme, and to increase employer investment and engagement in training their workforces for the future. Feedback shows employers are planning to do just that."